FTX's management seeks to clawback unlawful political donations​

By Jake Rickman
Image credit - Sergei Elagin / Shutterstock.com​

What do you need to know this week?

The crypto-exchange platform FTX’s new management announced yesterday that it intends to clawback tens of millions of dollars the group’s former executive, Sam Bankman-Fried (“SBF”), donated to US political groups.

SBF was reportedly the second largest donor to the Democrat Party, one of the two principal US political parties, in 2021, lobbying various party officials on regulations to the crypto-markets. He also admitted to donating to the Republican Party as well.

Separately, SBF, who was arrested at his private Bahamas residence last week, informed the Bahamian court over the weekend that he will not contest the federal prosecutor’s intentions to extradite him to the US. He had previously signalled that he would fight extradition over a litany of criminal charges related to allegations of embezzlement.

Why is this important for your interviews?

In our last newsletter, with the announcement of SBF’s arrest, we touched on the fact that where an insolvent company’s management has behaved unlawfully, the administration of the distressed company becomes more complex.

FTX’s decision, under the new management of senior insolvency lawyer John Ray III, to unwind these donations is indicative of the kinds of powers that a mismanaged distressed company has at its disposal to reclaim its assets which were unlawfully disposed of. These powers arise from equitable principles that a third party — in this case, political officials — should not benefit from the unlawful disposal of a company’s assets.

While Chapter 11 proceedings are naturally governed by US bankruptcy law, insolvency law in the UK has similar provisions. Generally speaking, insolvency practitioners can apply to the court and ask it to reverse transactions up to two years prior to the date of insolvency that were made at an undervalue. Political donations would presumably qualify as qualifying transactions.

If you are interested in restructuring law, understanding the general purpose of these procedures can help demonstrate to interviewers your commercial and legal awareness. More generally, this is good fodder to discuss if you are staying on top of FTX and the wider disruption to the crypto space.